In a new forecast, Cebr expects annual house price growth in 2022 to stand at 8.6%, down only slightly from its previous forecast of 8.7%. After recording fast growth throughout at the beginning of the year, averaging 10.2%, annual house price growth is expected to fall sharply in the months ahead.

‘We forecast growth to slow to 3.9% in the final quarter of the year. This comes amid strong headwinds in the housing market, notably including soaring inflation and swiftly rising mortgage rates. Annual house price growth is expected to enter negative territory, with a peak contraction of 6.2% expected in Q3 2023.’

Across 2023, Cebr forecasts point to an annual contraction of 4.5%. This marks a worsening from its previous forecast, in line with greater clarity on upcoming energy price rises and an updated (worsened) assessment of movements in mortgage rates.

Looking further ahead, Cebr expects a return to annual house price growth in the UK in 2024, albeit at a weak rate of 1.0% for the year, down from its previous forecast of 1.3%.

Housing market activity in the UK, as in many other economies, faces significant headwinds from swiftly rising mortgage rates. With an average of 3.5% at 75% loan-to-value (LTV) ratios, two-year and five-year fixed mortgage rates in July reached their highest levels since September 2012 and September 2014, respectively. July alone saw the sharpest monthly hike in mortgage rates on record (since 1995) for the two-year fix, and the second-sharpest rise for the five-year fixed rate.

These upward movements in mortgage rates came ahead of August’s 50-basis-point interest rate hike by the Bank of England, which itself was the sharpest in 27 years. Looking ahead, a further base rate hike of the same magnitude is expected this month. This would bring the base rate to 2.25%, its highest level since November 2008.